2018 (1) TMI 588 - AT - Income Tax

Reopening of assessment - incorrect and non-existing reasons for reopening - Held that - It is an admitted fact that reopening of the assessment was made in this case because as per information received from CIT (Central) Kolkata through CBI that assessee received accommodation entry from M/s. Basant Marketing (P) Ltd. for a sum of 2, 07, 85, 000 in assessment year under appeal. The assessee denied to have received any such accommodation entry in assessment year under appeal which was also confirmed by the concerned party. The contention of the assessee has been accepted by the A.O. Copy of the reasons are also filed on record. It was therefore clear that A.O. recorded incorrect and non-existing reasons for reopening of the assessment. Therefore on the face of it the reopening of the assessment is void and bad in law. The case of the assessee is squarely covered by the decision of the Hon ble Punjab & Haryana High Court in the case of Atlas Cycle Industries (1989 (4) TMI 48 - PUNJAB AND HARYANA High Court) - Decided in favour of assessee.

Summary

Issues:
Reopening of assessment based on accommodation entries,
Addition made under section 14A of the I.T. Act.

Reopening of Assessment based on Accommodation Entries:
The appeal and cross-objection were against the Ld. CIT(A)'s order for the A.Y. 2007-2008. The assessee filed a return declaring NIL income, but the AO reopened the assessment based on information received regarding accommodation entries from certain companies. The AO believed that income had escaped assessment. The assessee denied any transactions with the concerned party, which was confirmed by the party itself. The AO accepted the assessee's explanation, but proceeded to make an addition under section 14A. The assessee contended that the reopening was unjustified as no such transactions occurred in the relevant year. The Ld. CIT(A) held that since no addition was made based on the reasons for reopening, the assessment was void. The Ld. CIT(A) allowed the appeal, emphasizing that once the reasons for reopening ceased to exist, the assessment was invalid. The issue of disallowance under section 14A was not decided by the Ld. CIT(A).

Addition Made under Section 14A of the I.T. Act:
The AO made an addition under section 14A, which the assessee challenged before the Ld. CIT(A). The Ld. CIT(A) held that since no addition was made based on the reopening reasons, no further addition could be justified. The Ld. CIT(A) concluded that the assessment was void, as the AO lacked jurisdiction to make additions to the returned income. The Ld. CIT(A) allowed the appeal, stating that the AO's reasons for reopening were incorrect. The ITAT upheld the Ld. CIT(A)'s decision, noting that the reopening was based on non-existing reasons. The ITAT dismissed the departmental appeal and upheld the decision of the Ld. CIT(A). The cross-objection filed by the assessee was also dismissed, resulting in the appeal of the department and the cross-objection of the assessee being dismissed.

In conclusion, the ITAT upheld the Ld. CIT(A)'s decision, emphasizing that the reopening of the assessment was void and bad in law due to incorrect reasons. The ITAT found no infirmity in the Ld. CIT(A)'s order and dismissed the departmental appeal. The cross-objection filed by the assessee was also dismissed. The ITAT concluded by stating that the appeal of the department and the cross-objection of the assessee were both dismissed.